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Members of the task force have argued that the Medicare fraud industry has supplanted the illegal drug trade in Miami. In congressional testimony, Acosta noted signs that “Medicare fraud is rapidly eclipsing the drug trade as Florida’s most profitable and efficient criminal enterprise.” It has even trickled down to the folks who might otherwise have been involved in simple, petty crime. “They’ve figured out that rather than stealing $100,000 or $200,000, they can steal $100 million,” Justice Department fraud prosecutor Kirk Ogrosky told 60 Minutes in 2009. “We have seen cases in the last six, eight months that involve a couple of guys that if they weren’t stealing from Medicare might be stealing your car.” Medicare fraud also has spread to organized crime. In January 2011, Politico reported the bust of an Armenian mob ring charged with perpetrating $163 million in Medicare fraud. Among the items seized from the New Jersey group was a bundle of weapons, including multiple guns and a Bat’leth, a two-handed, double-bladed long sword modeled after the weapons used by Klingons on Star Trek. For criminals smart enough to work the basics of the payment system, the choice between drugs and Medicare is easy: Medicare is safer, potentially more lucrative, and much, much easier.
Just how easy is Medicare fraud? According to Aghaegbuna Odelugo, who swindled Medicare out of nearly $10 million between 2005 and 2008, it’s “very easy”—arguably no more difficult than doing summer temp work at a call center. Earlier this year, Odelugo told Congress in written testimony that the “primary skill required to do it successfully is knowledge of basic data entry on a computer.” The only other important element “is the presence of so-called ‘marketers’ who recruit patients and often falsify patient data and prescription data. With these two essential ingredients, one possesses a recipe for fraud and abuse. The oven in which this recipe is prepared is the Medicare system. This system has a number of weaknesses which are easily exploitable.” Odelugo then described how con artists manipulate the system’s billing codes, physician identification system, and prescription drug reimbursement program.
Medicare’s billing system is based on a hodgepodge of bureaucratic codes, one for each medical device or procedure. But the coding system is imprecise and contains significant overlap: Two nearly identical devices—say, a wheelchair and a variation on the same product with a slightly different safety strap—might be assigned two different codes. If one code is kicked back as ineligible for reimbursement, the scammer can easily submit the same claim under a different code for an essentially identical device. The same technique can be used to submit multiple claims for the same item, double-billing the government for the same service or product. Medicare’s billing system has long allowed providers to submit and resubmit claims with virtually no serious checks on their validity or patterns of misuse.
According to Odelugo, the process of billing for forged prescriptions is similarly easy. “A person engaging in this fraud will typically purchase a forged prescription from a marketer for a price determined by the amount the person anticipates earning,” he explained. “Usually this would be an amount of 15% to 20% of the anticipated profit.” The forger then submits the claim electronically, and Medicare responds as it is designed to: with a prompt payment.
Security surrounding the system is astonishingly lax. The “unique physician identification numbers” (UPINs) that doctors use to submit their claims are openly available to anyone on the Internet. Odelugo claimed to be able to hunt them down in just a few minutes on the Web. “As this statement is being written,” his testimony reports, “I have looked up the UPIN’s of several doctors simply to illustrate…how easily accessible this critical information is.” New Medicare provider numbers, meanwhile, have been easy to obtain by just about anyone, even those with criminal records.
Perhaps the biggest problem with Medicare’s billing system, however, is its pattern of excessive reimbursement rates, particularly for the category known as “durable medical equipment,” which encompasses medical devices, such as wheelchairs and oxygen tents, that assist patients living at home. These devices tend to be fairly inexpensive on the open market, but Medicare pays highly inflated rates for them. According to Odelugo, the reimbursements are “beyond exorbitant”—as much as 10 times the normal cost for knee braces, for example. “For anyone engaging in fraud,” he testified, “these numbers are too good to be true. It defies logic to believe that a system like Medicare can reimburse at these rates and not attract a great deal of fraud.” Nor were Medicare administrators unaware of the problem: In 2004, the Government Accountability Office published a report noting a failure to control rising spending on power wheelchairs, much of it due to fraud and abuse.
To assess how easy it is to defraud Medicare on medical devices, the Government Accountability Office in 2008 had agents set up fake names and bank accounts, then apply for permission to bill the system. At first Medicare rejected their application. But the GAO agents persisted. After the initial stamp of disapproval, GAO investigators produced quickly forged documents indicating business arrangements with other medical suppliers who didn’t actually exist. For contact information, the forged documents listed an unmanned telephone line inside GAO’s official headquarters. Medicare officials called the number and left a brief message asking for more information about the supplier contracts. One of the GAO agents returned the call and left what the agency describes as “a vague message in return pretending to be the wholesaler.” That proved to be enough.
Even though the GAO scammers had no medical clients—or even records suggesting client interest—Medicare eventually approved the payment application. Using “simple methods of deception,” the ensuing GAO report explained, “we obtained Medicare billing privileges and billing numbers…even though we had absolutely no means of supplying prospective clients with durable medical equipment.” It really is that easy.
If fraud is so easy, why hasn’t the federal government instituted reforms? One reason is that the system is almost incomprehensibly large: This year Medicare is paying, on average, 4.4 million claims to 1.5 million providers every day. Truly fixing such an enormous system would require a wholesale overhaul.
Another reason: For all its flaws, there are considerable benefits to the system’s current administrative ease of use, at least for the providers and patients who rely on it most. A system in which fraud is tougher to pull off is also one in which it is more difficult for legitimate providers to get paid. And the harder it is to get paid, the fewer doctors will want to participate in the system at all. The number of Medicare providers is already falling, and it is becoming harder for the rapidly growing senior population to find doctors.
One of the biggest reasons doctors are dropping out is that Medicare pays considerably less for medical services than private insurers. The payment system’s instability has made the situation even worse: Thanks to a poorly designed payment formula introduced in the 1990s, doctors face major potential reimbursement cuts every year or so, even though the cuts are almost never implemented. If doctors are going to work for Medicare’s lower rates, they expect at least to be paid promptly and without hassle. Adding layers of anti-fraud procedures on top of the current process would annoy the providers that the system relies on to provide seniors with care.
Criminal enforcement in the form of the strike forces in Miami and elsewhere has helped bring attention to the problem. But the potential gains from such efforts are small relative to the likely size of the problem: Unearthing a few billion a year in fraud is impressive only until you remember that the abuse involved may total $60 billion or more. And even those victories come at a price: For the 2011 fiscal year, HHS budgeted a total of $1.7 billion for anti-fraud activities, a $250 million increase from the prior year.